BlackBerry (TSX:BB) and OpenText (TSX:OTEX) both represent unique opportunities for investors in Canada’s tech sector. However, when examined side by side, it’s clear why one might perceive BlackBerry stock as a riskier choice. Meanwhile, OpenText appears more stable and promising for long-term investors. Let’s unpack the respective positions, diving into their recent earnings, past performance, and future outlook to understand the risks and rewards they bring to the table.
BlackBerry stock
BlackBerry, once a symbol of cutting-edge smartphone technology, has had to transform radically to survive. Today, it focuses primarily on cybersecurity and Internet of Things (IoT) solutions. While this pivot seems strategically sound in an increasingly digital world, execution remains a challenge. BlackBerry’s latest quarterly earnings showed revenues of $143 million, a year-over-year decline from $152 million. The company attributed this drop to weakness in its Secure Communications division, offset somewhat by growth in IoT revenues.
The challenge for BlackBerry lies in its profitability. The company continues to operate at a loss, reporting a net loss of $11 million for the quarter, compared to $21 million in losses during the same period last year. While this shows some progress, the persistent negative earnings are a concern for investors looking for stability. BlackBerry’s Cylance unit, a high-profile acquisition for $1.4 billion in 2019, has struggled to meet expectations, further adding pressure. The company is reportedly exploring strategic options for Cylance, including a possible divestiture. This signals internal difficulties, which could unsettle investor confidence.
Adding to the complexity is BlackBerry’s financial structure. The company holds $211 million in cash but carries $250 million in debt, resulting in a debt-to-equity ratio of 34.2%. With an operating cash flow of negative $74 million over the trailing 12 months, BlackBerry’s financial flexibility is limited. Investors who prioritize balance sheet strength might find these figures discouraging.
OpenText stock
In stark contrast to BlackBerry’s struggles, OpenText has emerged as a powerhouse in enterprise information management. Its fiscal 2024 results reflect its leadership in the space, with total revenues reaching $5.8 billion – a 29% year-over-year increase. While its revenue growth was fuelled partly by acquisitions, OpenText has demonstrated a knack for effectively integrating new businesses. This has bolstered both its scale and profitability.
Profitability is where OpenText truly shines. The company reported a net income of $465 million in fiscal 2024, translating to earnings per share of $2.49. This solid performance is complemented by an earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 27%, showcasing operational efficiency. Moreover, OpenText’s free cash flow of $928 million highlights its ability to generate strong liquidity, which it uses for shareholder friendly initiatives such as dividends and share buybacks.
OpenText’s management demonstrated its commitment to shareholders through consistent dividend increases. The company recently announced a 5% hike in its annual dividend, now yielding 3.7%. Plus, a $300 million share repurchase program reflects confidence in its long-term prospects. These moves not only enhance shareholder value but also signal financial stability and growth potential, thus making OpenText an attractive choice for income-focused investors.
Where value lies
BlackBerry stock’s forward price-to-earnings (P/E) ratio of 37.7 reflects the market’s cautious optimism about its ability to turn things around. However, such a high valuation for a company with persistent losses might indicate speculative enthusiasm rather than grounded confidence. Meanwhile, OpenText’s forward P/E ratio of 7.8 suggests that the company is undervalued relative to its earnings potential, thus making it a compelling buy for value-oriented investors.
Looking forward, BlackBerry stock’s success hinges on its ability to stabilize its core businesses and capitalize on the growing demand for cybersecurity and IoT solutions. However, with a track record of inconsistent execution and profitability challenges, the road ahead is uncertain. For investors with a higher risk tolerance, BlackBerry stock might offer upside potential if it successfully executes its turnaround strategy. Still, the risks remain significant, particularly in a volatile tech sector.
OpenText, on the other hand, appears to be a safer bet for investors seeking steady returns. Its diversified revenue streams, robust cash flow, and disciplined approach to growth position it well for long-term success. As the company continues to expand its presence in enterprise software and cloud services, it is likely to benefit from the ongoing digital transformation of businesses worldwide.
